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Argentine peso records worst month in history in August following primary election shock

Argentina Exchange Rate September 2019

Argentina: Argentine peso records worst month in history in August following primary election shock

September 9, 2019

The Argentine peso plunged in August, due to the unexpectedly resounding victory of Macri’s rival, Peronist candidate Alberto Fernández, in primary elections held on 11 August. On 6 September, the currency traded at 55.87 ARS per USD, which represented a 19.0% fall over the same day of the previous month. Moreover, the peso lost broadly a third of its value compared to the same day last year and was also over 30% lower than at the beginning of the year.

The currency’s recent mauling was triggered by the results of August’s primary elections, which saw the Peronist candidate Alberto Fernández prevailing by a wide margin over President Macri. This caught the market by surprise and provoked a massive selloff of both domestic currency and of Argentine stocks on fears of a return of interventionist policies and of a debt default. Further downward pressure on the currency came after the government announced, on 25 August, it would postpone payment of USD 7 billion on short-term debt, and its intentions to seek a “voluntary reprofiling” of USD 50 billion of longer-term debt, mostly held by foreign investors. The decision by Fitch Ratings and S&P Global Ratings to declare the country in “selected default” further hit the peso. In early September, the local currency recovered some lost ground following the government’s decision, on 1 September, to introduce capital controls to stem the rapid depletion of foreign-currency reserves. However, the gap between official and black-market FX also widened notably after the measures were introduced.

Looking ahead, the peso is expected to depreciate further due to runaway inflation, and to the likelihood of a victory of the Fernández-Fernández ticket at general elections scheduled for 27 October, which would depress investor confidence and hit economic activity.

Panelists surveyed for this month’s LatinFocus report see the ARS ending at 66.68 per USD and 84.42 per USD in 2019 and 2020, respectively.

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